Risk management
Risk management

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Risk management

7 Human factors associated with risk reporting

Risk reporting and communication can be made more difficult due to ‘human factors’. Some common factors are:

Table 1 Human factors

Human factorDescription
Optimism biasPeople believe that negative events are less likely and positive events more likely than is the case.
Burying bad newsWhere bad news is not shared and even hidden. The case of Nick Leeson at Barings Bank is a classic case of burying bad news. The large losses he sustained were only found when they became too large to hide.
Hero culture (that loves firefighting)A hero culture is one where hard working and highly talented people, through ‘sheer strength’ and ‘will power’, fix seemly insurmountable problems. The problem is that if these people get praised and highly rewarded for their efforts, whereas people who prevent the seemingly insurmountable problems from arising in the first place are ignored, poorly rewarded and overlooked for promotion, the organisation will tend to be one which moves from crisis to crisis without an effective approach to risk management that secures long-term growth
Organisation silosDifferent departments, locations or groups do not share information, goals or processes with one another. This impacts operations, efficiency and morale.
Loss aversion Is the psychological tendency to prefer to avoid a loss rather than acquire a similar gain?
Group thinkDoes the organisation favour internal harmony and consensus over getting the right decision? Group think is often associated with irrational or dysfunctional decision making.
Poor estimate of riskThe assessment of risk can be flawed if the activity is new or novel or if the risk rarely happens. Estimates can also be effected by behavioural factors and incentives. For example, the incentives may be to downplay or underestimate threats, in an attempt to make a situation look better than it really is. Common examples include large capital programmes and acquisitions, where underestimates of risk lead to large overruns in cost and time or destruction of shareholder value.
Halo effectRecent or more memorable events are more highly thought of, and the impression created in one area (e.g. a previous activity) influences opinion of competence in another, unrelated, area.

Activity 2 Controls and human factors

Timing: Allow approximately 15 minutes

Look at the controls below and consider how human factors might influence their effectiveness.

Control 1

Which human factor might be present?

  • A company decides to outsource some work and in doing so releases some control of the standards by which its products are produced.
  • After successfully tendering the work and after a number of months of high-quality production, the customer services team begin to receive some complaints. Looking into this the company finds a number of small flaws in the outsourced components.
  • Company representatives visit the outsourcing provider and find that the local entry criteria is lower and the induction process is far shorter than they would have expected.

a. 

Competence (person not properly trained)


b. 

Fatigue (person is tired)


c. 

Impaired performance (under the influence of drugs or alcohol)


d. 

Distracted (other things catching their attention)


e. 

Over worked (too much work to properly operate the control)


f. 

Pressure


g. 

Deliberate action


The correct answer is a.

Control 2

Which human factor might be present?

  • A company provides customer support through a team of field services representatives. These representatives travel to customer sites within a geographic region and provide service and maintenance to customer products. Representatives must adhere to strict processes to ensure that they remain safe whilst in the field and that they maintain a customer’s product in a safe manner.
  • Recently a service representative has had to go on long-term sick leave. To cover the resource gap, colleagues from neighbouring regions are filling in. However, it is peak season for product use and late one evening a representative receives a call to attend to a malfunctioning product at the furthest point from her base location.

a. 

Competence (person not properly trained)


b. 

Pressure


c. 

Fatigue (person is tired)


d. 

Impaired performance (under the influence of drugs or alcohol)


e. 

Distracted (other things catching their attention)


f. 

Over worked (too much work to properly operate the control)


g. 

Deliberate action


The correct answer is c.

Control 3

Which human factor might be present?

  • An employee is invited to attend a week-long conference and training event overseas representing the company. At the end of the week there is a function in the evening and a number of the delegates stay on late into the evening.
  • The employee was booked onto an early flight, but had taken the precaution to book a taxi to the airport. However, the employee is called by the airline very early in the morning to advise that due to a security alert at the airport early outbound flights have been cancelled and that the only way for the employee to get to his destination would be to fly from another airport around 100 km away and at an earlier time. To do this the employee would have to drive after having drunk the previous night.

a. 

Competence (person not properly trained)


b. 

Pressure


c. 

Fatigue (person is tired)


d. 

Over worked (too much work to properly operate the control)


e. 

Impaired performance (under the influence of drugs or alcohol)


f. 

Distracted (other things catching their attention)


g. 

Deliberate action


The correct answer is e.

Control 4

Which human factor might be present?

  • An company has a relaxed approach to personal use of the internet at work: employees are permitted to use the company internet for personal use as long as it does not interfere with employees hitting their objectives.
  • At the end of the year one of the sales managers reviews his team’s performance. The employees have hit their targets, but errors have been alarmingly high. The errors have cost the company in terms of re-work, delays and in some cases refunds.
  • The manager reviews internet traffic for the team and finds that it is considerably higher than other teams in the company. The manager also notices that internet usage goes up around major sporting events and errors also increase at the same time.

a. 

Pressure


b. 

Competence (person not properly trained)


c. 

Fatigue (person is tired)


d. 

Impaired performance (under the influence of drugs or alcohol)


e. 

Over worked (too much work to properly operate the control)


f. 

Distracted (other things catching their attention)


g. 

Deliberate action


The correct answer is f.

Control 5

Which human factor might be present?

  • A production line produces high-volume products (thousands of items per hour). To ensure that products meet the required standard, a quality control department undertakes a series of tests on a product sample. The sample of products is taken for every 10,000 products produced.
  • The company acquires a competitor’s production line of a similar scale and, to cut costs, closes its quality control department transferring all quality control work to one department. The original department remains unchanged.

a. 

Pressure


b. 

Competence (person not properly trained)


c. 

Fatigue (person is tired)


d. 

Deliberate action


e. 

Impaired performance (under the influence of drugs or alcohol)


f. 

Distracted (other things catching their attention)


g. 

Over worked (too much work to properly operate the control)


The correct answer is g.

Control 6

Which human factor might be present?

  • A despatch manager is preparing a product for despatch/ Partway through the preparation she realised that certain paperwork is missing and contacts the customer services team requesting clarification and further paperwork in line with the company process.
  • Shortly afterwards the despatch manager receives a call from the director of the customer services team demanding she despatches the product ASAP because a customer needs the part to keep them operational.
  • To ensure customer satisfaction the despatch manager finds a way to get the part despatched.

a. 

Competence (person not properly trained)


b. 

Over worked (too much work to properly operate the control)


c. 

Deliberate action


d. 

Distracted (other things catching their attention)


e. 

Pressure


f. 

Impaired performance (under the influence of drugs or alcohol)


g. 

Fatigue (person is tired)


The correct answer is e.

Control 7

Which human factor might be present?

  • A company is sourcing a major supplier to undertake work for a major government programme and must follow a set of sourcing guidelines provided by the government.
  • To gain experience the process of initial supplier selection is given to a relatively junior member of the team. It is their role to create a shortlist of suppliers that will then go thorough a formal tender process.
  • A relative of the team member works at one of the potential suppliers and invites the team member to a corporate hospitality box at a major sporting event.
  • At the event they begin to discuss the shortlist.

a. 

Competence (person not properly trained)


b. 

Over worked (too much work to properly operate the control)


c. 

Pressure


d. 

Distracted (other things catching their attention)


e. 

Deliberate action


f. 

Impaired performance (under the influence of drugs or alcohol)


g. 

Fatigue (person is tired)


The correct answer is e.

RM_1

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